Patchy Aussie leaves NZ and cost control to drive Fletcher

Patchy Aussie leaves NZ and cost control to drive
Fletcher earnings

By Jonathan Underhill

Feb. 20
(BusinessDesk) – Fletcher Building says the outlook in
Australia is uncertain after a strong kiwi dollar
exacerbated a drop in first-half earnings across the Tasman,
leaving New Zealand and the company’s cost-cutting
programme as key profit drivers.

Shares of New Zealand’s
largest construction and building products group fell 2.9
percent to $9.44, paring an earlier decline to as low as
$9.39 after the company posted a 5 percent gain in net
profit in the six months ended Dec. 31 to $154 million.

That missed some analyst estimates as the company
recognised $20 million of restructuring costs and saw some
$206 million sliced off revenue when it was translated into
kiwi dollars. Sales fell 2 percent to $4.27 billion.

Among the positives though, was a 1 cent lift in
first-half dividend to 18 cents, a revised annual benefit
from its FBUnite cost control programme of $100 million from
a previous range of $75 million to $100 million, and
confirmation of guidance for full-year earnings before
interest, tax and significant items of $610 million to $650
million.

“Net-net if you take out the restructuring
costs and currency effect, it’s not as bad as the headline
number suggests,” said Slade Robertson, a portfolio
manager at Devon Funds Management. “New Zealand looks like
it has been quite good and that’s where the positive story
is coming from.”

Operating earnings grew 7 percent to
$262 million in the first half, driven by a 35 percent
improvement from its New Zealand operations. Australian
earnings fell 27 percent to $77 million and the strong kiwi
against the Australian dollar turned a 1 percent gain in
sales across the Tasman into a 10 percent decline to $1.7
billion in NZ dollar terms.

The outlook in Australia
“remains uncertain (with) variation in activity levels
continuing across each ofthe states,” the company said
in a presentation released for a conference call. While some
improvement in housing construction is expected, to date
this has been weighted toward multi-unit developments,
rather than stand-alone houses that consumer more of
Fletcher’s products.

The outlook for commercial
construction remains subdued, state governments are spending
less on infrastructure and mining activity is
“depressed,” the company said.

“Australia is clearly
looking better than it was 12 months ago,” chief executive
Mark Adamson said on the call. “New South Wales seems to
be leading that charge and there are pockets of improvement
in Queensland as well.”

Adamson said he was able to
tighten the target for the FBUnite programme as the company
developed detailed plans against each of its
businesses.

Revenue in New Zealand rose 3 percent to $2
billion and operating earnings lifted to $167 million as the
company benefited from rising housing construction, repairs
and rebuilding work in Canterbury and demand for housing in
Auckland.

The ‘rest of the world’ segment posted a 4
percent gain in revenue to $541 million and a 16 percent
gain in operating earnings to $37 million, with a pickup in
North America activity, where earnings rose 21 percent, and
flat activity levels in Europe.

Of Fletcher’s six
divisions, only construction managed to increase sales in
the first half – up 6 percent to $648 million and
contributing to a 51 percent increase in operating earnings
to $56 million.

The company had a construction backlog of
about $1.6 billion as at Dec. 31, up from $1.19 billion a
year earlier.

Laminates and panels had a 2 percent decline
in sales to $866 million while operating earnings rose 4
percent to $53 million.

Distribution in New Zealand, the
Placemakers and Mico Plumbing chains, had a 4 percent drop
in sales to $582 million and a 56 percent jump in earnings
to $25 million. The revenue decline reflected the sale of
the Corys Electrical business while Placemakers lifted sales
by 10 percent, the company said.

In the Australian
Tradelink and Hudson Building Supplies businesses, sales
fell 10 percent to $476 million and earnings rose 14 percent
to $8 million. The currency impact eroded what was a 40
percent earnings gain in Australian dollar
terms.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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